A $78 Million Solution

Thomas J. Riordan is the sole in-house lawyer at Princeton, N.J.-based Rockwood Specialties Inc., the parent company of a dozen chemical manufacturers. Describing his office as "the epitome of the lean organization," Riordan says Rockwood recoups its litigation costs by recovering settlements and judgments in IP cases, such as a $78 million verdict in a patent infringement suit for one of its subsidiaries, Southern Clay Products.

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NAME: Thomas J. Riordan TITLE: Vice president and secretary, law and administration AGE: 51 ORGANIZATION: In November 2000, the investment firm Kohlberg Kravis Roberts & Co., after an acquisition from British company Laporte plc., launched Rockwood Specialties Inc. as the parent of a dozen chemical companies. Based in Princeton, N.J., with operations throughout the United States, Canada, Europe and Asia, Rockwood manufactures chemical products primarily used by other manufacturers, including pigments for plastics, wood treatment products and chemicals used in computer semiconductors or printed circuit boards. Subsidiaries include Rockwood Pigments NA Inc., the world’s leading producer of iron oxide color pigments, and Southern Clay Products, a manufacturer of clay-based additives. The 2,850-employee private company posted annual revenues of $835 million last year. OUTSOURCING AND STRATEGY: His law office is “the epitome of the lean organization,” said Riordan, who is the sole in-house lawyer at Rockwood and its subsidiaries. Since losing his one staff lawyer to downsizing, Riordan’s philosophy has been to “outsource everything.” He has hired national law firms to oversee corporate, tax and IP matters, and local firms to handle subsidiaries’ day-to-day legal affairs. Riordan monitors key legal issues during monthly meetings of the top executives of Rockwood and its subsidiaries. He also keeps in close contact with the local law firms that handle subsidiaries’ day-to-day commercial, employment and litigation matters. “They know when to call me and when not to call me,” he said. He has cut down the need for legal handholding by developing standard legal forms and checklists for employment terminations and routine transactions. Each Rockwood company operates as a stand-alone business, with its own budget for legal affairs. “If they enter into a poor contractual relationship resulting in significant legal bills, the business pays for it,” said Riordan, who credits this arrangement for holding down legal costs throughout Rockwood’s far-flung empire. To avoid skimping on essential legal services, however, businesses must obtain counsel’s approval of material commercial contracts, he said. The corporate headquarters controls intellectual property matters and assumes the cost of IP litigation, said Riordan. “We do not want the business decision to protect intellectual property to be influenced by budgetary or profit and loss considerations.” $78 MILLION VERDICT: Rockwood’s corporate office recoups its litigation costs by recovering settlements and judgments in IP cases, said Riordan. Under this policy, the company may soon be enriched by Southern Clay Products’ big verdict in its patent infringement suit against United Catalysts Inc., a Louisville, Ky.-based competitor. In its complaint, Southern Clay alleged that UCI had infringed its patented process for making organoclays — gelling agents for industrial greases and coatings. Laporte and Southern Clay hesitated to sue one of their few competitors in the organoclay market, Riordan said, but UCI first offered only vague assurances that it wasn’t infringing on the patented manufacturing process and then questioned the validity of Southern Clay’s patent. While UCI dithered in the conference room, he said, it profited in the marketplace from its patent piracy. It soon became a matter of sue or die for Southern Clay. “In the specialty chemical industry, technology is critical,” he said. “If you don’t support, stand by and defend your technology, you’re not going to survive very long.” Southern Clay’s decision to press on soon paid off. Riordan sat through the 3 1/2-week jury trial in Houston in 2000, but said he had little to add to veteran IP litigator George P. McAndrew’s well-honed attack on UCI. According to Riordan, the judge and jury were especially incensed by a 1990 UCI internal memo that candidly summarized the company’s two options: obtain a license to use Southern Clay’s patented process or violate its patent. On June 6, 2000, the jury awarded Southern Clay $20.9 million in compensatory damages. On Feb. 1, 2001, federal Judge Kenneth M. Hoyt of the U.S. District Court for the Southern District of Texas denied UCI’s post-trial motions, and slammed the company for its “dishonesty and deception” in claiming noninfringement and in raising frivolous defenses and counterclaims. Hoyt trebled the damage award based on the jury’s finding of willful infringement and tacked on interest and $2.9 million in attorneys’ fees, awarding $78 million to Southern Clay. UCI’s appeal is pending before the Federal Circuit. Southern Clay Products Inc. v. United Catalysts Inc., No. H-98-1756 (S.D. Texas). OTHER LITIGATION: Rockwood has less litigation than most comparable businesses, said Riordan, who estimates that the company averages 50 open cases at any time. Most of these are property damage or products liability cases handled by insurance carriers, said Riordan, with the remainder consisting of “a few” IP cases, generally with Rockwood as plaintiff, a “dwindling” number of employment cases and the occasional contract dispute. IP TIPS: Riordan offers IP practice pointers for his fellow in-house counsel: � Conduct internal audits to identify valuable intellectual property, and protect these assets through employee confidentiality and vendor/customer secrecy agreements. � Be aggressive. Take legal action, beyond threatening letters, to protect IP — especially with respect to former employees and customers. � Be forewarned of time and cost. “Even the most aggressive management will wince at the mounting legal fees, [so] be prepared to defend your position [and] strategy to management on a monthly basis,” he said. PRINCIPAL OUTSIDE COUNSEL: For the past quarter century, Jim Modlin and Candace Beinecke of New York’s Hughes Hubbard & Reed have been the primary corporate counsel to Laporte/Rockwood. New York’s Simpson Thacher & Bartlett has recently picked up some transactional work. Clifford Chance Rogers & Wells handles international tax and European transactional and corporate matters. The company’s longtime IP firm is Chicago’s McAndrews, Held & Malloy, while Chicago-based Seyfarth Shaw works on labor and employment matters, and Washington, D.C.’s Howrey Simon Arnold & White covers antitrust issues. ROUTE TO THE TOP: Riordan, whose father was a 30-year FBI veteran, grew up in Miller Beach, a town in northern Indiana. He graduated in 1972 from Chicago’s Loyola University with a B.A. in political science and economics. Riordan continued taking night classes at Loyola’s business school while working in junior management at Time Inc. After earning his M.B.A. in 1975 in industrial relations, Riordan became an employee relations manager at Universal Oil Products, an international technology and chemical products licensor. Universal underwrote Riordan’s studies at the Northern Illinois University College of Law and made him an in-house counsel after he graduated in 1980. In 1989, Riordan became the chief legal counsel of Laporte’s U.S. operations. As sole in-house counsel in America, Riordan oversaw more than 40 major corporate transactions, ranging from $500,000 technology divestitures to multimillion-dollar M&A’s. FAMILY: Riordan and his wife, Victoria, live in New Hope, Pa., and have three daughters: Maureen, 8; Jennifer, 18, a University of Mississippi freshman; and Meaghan, 22, a senior at the University of North Carolina. LAST BOOK READ: “John Adams,” David McCullough’s biography of America’s second president.

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